The demand for money increases and the demand for money curve shifts rightward if
A) the real interest rate increases.
B) the nominal interest rate increases.
C) real GDP increases.
D) the inflation rate increases.
E) the price level falls.

Question

Quizplus · Accepted Answer

When real GDP increases, it leads to an increase in income, which in turn increases the demand for money for transactions and precautionary motives. This leads to a rightward shift in the demand for money curve. The other options (A, B, D, and E) would actually lead to a decrease in the demand for money, resulting in a leftward shift of the demand for money curve.

The Demand for Money Increases and the Demand for Money